2022 is coming to an end!
What kind of investment decisions did you make during the year?
I bought a few properties in the second half of the year, a couple pre-constructions for the longer term and an assignment closing next month.
I actually have a few closings to do in 2023, ouch, at 6% mortgage rates.
But looking at the prices I bought these units at, I really can’t complain.
There’s a downtown studio that I bought 7 years ago.
I put down a $50,000 deposit for a unit price of $250,000.
You see, from an investment point of view, it is such a great thing that it took so long to build.
The unit price has at least doubled and that means my $50,000 deposit has grown 500% in 7 years.
And no, I’m not selling any of my units, I’d rather pay the 6% mortgage rates.
Because…
Here are my 3 predictions for 2023.
[Opening]
#1 Inflation Will Come Down to Around 4%
So far we haven’t seen too much of an effect from the aggressive interest rate hikes, inflation is still high up at around 7%.
What makes me believe that inflation would be coming down?
Well, interest rate is only part of the equation.
Don’t forget about the fundamental issue driving prices up.
That’s right.
Supply and demand.
All the Covid supply chain disruptions have been ongoing, demand is constantly not met, so prices stay high up.
Hasn’t the world been opened up already?
Not in China, the second largest economy in the world.
Throughout 2022, China is still enforcing a very strict zero-Covid policy.
Foxconn is located in central China, with around 200,000 employees and they produce around 70% of iPhone shipments globally.
It is known as the Apple factory.
Just 2 months ago, in mid-October, Covid cases began to be detected in the factory.
At the beginning of November, the factory was ordered to shut down with all 200,000 employees being locked inside the factory for 7 days.
Then there were fears and protests about the strict lockdowns.
There were rumors saying that iPhone production could slump by as much as 30%.
Yes, it is that huge of an impact.
Hospitals, car makers, builders etc around the world are suffering from all kinds of shortages because they all need materials from China.
Global supply chain issues are still very much in effect.
How can inflation come down when supply constantly fails to meet demand?
Something drastic has to happen.
And it did.
Over the past couple weeks, the Chinese government did a sudden 180-degree turn and ditched most of the domestic Covid restrictions.
If China continues to open up, that will be the ultimate solution to the supply chain problem.
When supply meets demand, of course, inflation is going to come down.
#2 Interest Rate Will Peak by April
Did you remember how many rate hikes we got in 2022?
Seven rate hikes since March.
That’s almost one per month!
We may get another one or two hikes early 2023, but I don’t think there will be more than that because we are entering the danger zone.
When the interest rate is high, people spend less money, businesses stop hiring…
Then our GDP starts going down and we go into recession.
You see, it is of the Bank of Canada’s least interest to raise interest rates any higher than necessary because they want to see economic recovery and not recession.
They would stop the rate hikes immediately once inflation is under control.
If everything goes well with the reopening of China and supply chain issues get resolved, then we could potentially see interest rates coming down in late 2023.
#3 Real Estate Prices Will Stay Flat
The market is full of uncertainties, that’s for sure.
It’s normal that 80% of the people would take the wait-and-see approach.
Buyers are hesitant to buy, of course, they are worried that prices would drop further.
At the same time, sellers are also hesitant to sell because they are worried that we have hit the bottom already.
Who wants to sell at a rock bottom price, right?
So I think the first half of 2023 would still be characterized by low volume sales with prices remaining more or less flat.
Fundamentally, with all the newcomers coming into Canada, the demand is always here, it’s just suppressed.
Once inflation and interest rates are settled down, demand will be unleashed.
Do you want to know what my best selling product is in 2022?
Yes, pre-construction condo.
Which one?
High end? Low end?
The 10% deposit one in Regent Park?
That one sold extremely well, but it didn’t make it to my top.
The top one is Frank Gehry’s design on King Street, Forma Condos, with 1 bedroom units starting at around $1 million dollars.
Maybe you find it surprising that such a high end product would be the winner in a very cold market.
I can tell you that the focus here is not the price tag.
People are buying Frank Gehry’s masterpiece, of course.
But there’s one very important thing that people are buying with the masterpiece.
Time.
It is all about how much you pay to buy how much time?
When you can buy 6 years’ time with $100,000, that’s really cheap.
You put down your deposit and you let inflation, interest rates, all that stuff play out by themselves.
What are the odds that real estate prices in Toronto 6 years later will be lower than today?
Of course, there are always people who think that prices will drop another 30% and I totally respect that.
Crisis or opportunity? You decide.
My prediction is that more and more developers will offer low deposit programs to attract buyers in 2023.
So those are my bold predictions for the coming year.
If you haven’t subscribed, make sure you do so now so you can see how my predictions play out.
I wish you and your family a healthy and prosperous year ahead.
Happy New Year!